|
|
 |
|
Reshuffle
in
the corner office - Indian Management
Magazine: August 2005 CEO exits are becoming increasingly frequent. What
should companies do to cope with it? Purvi Sheth & Tarun
Sheth
Even as we
write this, there's probably an unhappy spouse in a marriage
somewhere, contemplating separation or starting divorce proceedings.
Again, there's probably an unhappy CEO somewhere contemplating a
resignation or a set of Board members seeking it from him/her. These days,
the number of CEO / top management resignations are rising almost as
fast as divorce rates in the country. Reports mention that the average
tenure of the CEO has steadily decreased in the last five years. This is
as true in India as it is internationally. We have our own
Vivek Pauls for every Carly Fiorina! When our
lawyer friend mentioned reasons for rising divorces these days, he spoke
of intellectual incompatibility, geographical constraints (long
distance marriages), boredom, socio-cultural
incompatibility, disparate economic priorities, emotional incongruity,
external attractions and finally, unreasonably high expectations of both
partners in the relationship. Since the essence and foundations of most
well-intentioned relationships are the same, we felt these uncannily
applied to CEO-organization alliances. Four decades
back, landing a corporate job was an achievement for an individual and
getting a top job was the pinnacle from which you hated to move out
unless pushed or if you were too ill to continue. In the last 25 years
acquisitions, expansions and introduction of new technologies have
entered the scene and the need to hire new talent has become imperative.
This coupled with new opportunities has led to exits. The maximum
exodus has been from companies that grew with bought-out talent or
individuals who joined at the top. Compare these with CEOs at ITC,
P&G and HLL who continue in their jobs till retirement or promotion.
Among the Indian companies ICICI, HDFC, Birla's and Tatas (both until
recently) are companies which are similar to the multinational
corporations cited above. It would not be surprising if they are also
hit by the exodus bug in due course. At the same time, it is worth
understanding how they are retaining their talent
so far. Why
now? When you look
at that process closely, you notice that the exits have been due to
different external and internal pressures and it is necessary to
appreciate that for corrective action. What are they?
7.
Conflict with the Board/Chairman: This may
happen on a major issue or a number of minor issues. Sometimes, the
Chairman, though deemed non-executive actually performs an executive
role and that comes in direct conflict with the CEO. 8.
Better options: external career options
abound these days. CEOs, especially with performance records or unique
skill sets, are coveted outside and tempting offers may come their way. Most reasons
for a CEO leaving are not ones brought about suddenly. There is always a
simmering below the surface, not unknown to many board or senior members
in the team. Sudden departures do exist, however, they are not as sudden
to the company as they are to us on the outside.
Planning
for exits So what does a
company do? There are many expert opinions - ranging
from succession planning to interim organizational objectives evaluation
to climate surveys that can help minimize the shock and trauma of CEO
exits. Before that
stage of an unexpected departure is reached, a company should
continuously examine the motivation of the CEO and make sure there is
some kind of succession plan in place. While looking for possible ways
of managing the situation and the CEO, we could learn from the success
stories as well as the failures. A. Homegrown
talent: It seems that companies that hone their CEOs internally are less
likely to have surpriseexits. Some MNCs have a process in place where
selection is transparent and even those who lose out in the race once
can hope to make it later. Alternately, they find opportunities abroad
in other subsidiaries. Indian companies may not have that option yet and
hence their salvation lies in growth and diversification. ICICI and HDFC
are both doing it fast and furiously. This strategy may not always work
with smaller companies as the bigger ones these days offer ready and
larger opportunities to attract them away. B. Select
carefully and de- fine the role clearly: Companies with a hybrid
approach i.e. those who grow their own talent and also recruit for
specific skills or experience from outside, need to define the role
clearly, identify and select the most appropriate candidate, explain the
role and possible next steps, examine the motivation and culture fit
closely. Only then should they go ahead if there is no com- parable
candidate internally available. If this is' not done, the Chairman /
Board will constantly make undue comparisons. And eventually sacrifice
the outsider. When a CEO of
a business or division is brought from outside, it is essential to
provide a reasonable (about 2-3 year) period before results can be seen.
Promise of quick movement is a sure way of fuelling expectations and
ambitions, which are not easy to meet. Equally, one must not recruit
overqualified leaders even if they are accessible resources. The success of
some large Indian diversified conglomerates in retaining their top
talent recruited from outside lies in the fact that their selection was
careful and the assignments well chosen. C. Feedback
and support: A senior incumbent candidate needs support emotionally as
well as thorough communication to the organization, which many companies
fail to provide. Another frequent failure is feedback on performance.
Chairpersons of family promoted companies for example, are not
accustomed to this process without realizing that new recruits
especially at top management levels need feedback as much as their daily
bread. They also need continuous communication with the Chairperson,
which serves the purpose of reassurance and revalidation. D. Managing
aspirations - Indian family-promoted companies still have a problem in
managing aspirations that most similar companies in Europe and US seem
to have resolved. This does
not mean that things are necessarily better at MNCs. In their case, they
may bring in expatriates when you least expect them to and the homegrown
CEO feels stunted. E. Plan for
succession: Sometimes change is desirable to bring about a radical shift
in business practices and culture. The best a forward thinking
organization can do is to manage the transition better and avoid
surprises. Succession planning has been oft quoted as a way to managing
the transition better. Developing a cadre
However, there
is no one foolproof method in avoiding exits or having ready internal
backup candidates for a potentially vacant leadership role. Companies
can adopt several approaches to succession planning: I. Develop
General Management capabilities: An organization with steady management
should strive to develop general management capabilities in their
functional heads. This is good
not only for long term succession
planning, but helps as a retention and motivational tool. This can be
done through job rotation and other institutional assistance like
mentoring and coaching programs, executive education, etc. II. Evaluate
possible successors: Periodic evaluation of talent to differentiate star
performers from those managers with a track record as well as business
management potential. Most companies mistake their best performers for
successors to the CEO! It is an oft repeated and dangerous error where
performance and potential are considered as the same criteria for
succession planning! III. Create a
fire where there is none: Companies don't like to think of a worst case
when the CEO or the business is doing well. We call this the arrogance
of security and suggest never to be complacent about your leadership or
its loyalty! If there is no internal talent who can immediately takeover
from the CEO, it is a good idea to recruit a senior person who can be
second in command! IV: Align
business objectives and internal competency: Companies should keep their
medium and long- term objectives in mind when assessing their CEO
performance. If the CEO is going to reach his level of incompetence or
threshold of boredom, then it is wise to have an alternative
CEO-in-waiting with capabilities that will contribute to their specific
business plan. V: Get an
objective opinion of CEO capability: This is essential in planning for
movement. Sometimes,
especially if an individual has been in an organization for long, it is
difficult for the management (Chairperson/Board) to recognize his
shortcomings, motivation and/or the lack of it, his areas of development
etc. It may be worth- while to obtain an external, objective analysis
and assessment to realize the level of succession planning required and
the timelines of it. VI. Come to
terms with reality: We must live with the fact that lifelong association
is no longer the rule and exits will happen. The glory or
discredit attached to top management changes in organizations must not
be hyped. Just as countries manage economic and political growth despite
calamities, just as individuals carry on and remarry (in some cases
several times!) after divorce, organizations will continue to survive
and thrive after a senior member leaves. We must realize that there is
no one is indispensable or all-pervasive - whether he is the CEO or the
Chairperson. And, we must not forget that for every CEO who leaves,
there are several others
who stay on. The changing face of the CEO
To examine
issues surrounding the degeneration and severance of management
relationships and ties, we had to track back in time. We decided to
represent a historical perspective (70s/80s/ early 90s) and leadership
behavior observed in the last decade. History: CEOs
came to their chair in their late forties or early fifties. Today: CEOs could
be 26 years old! Even traditional engineering companies that had older
CEOs are looking for less "grey hair"! The average age of top
management has drastically changed and so have their motivations. History: The
CEO/MD was a "know it all"; almost patriarch of the company,
who had probably spent at least a few years in every function and was
equally well versed with marketing as with technical! He was generally
acquainted with the machinations of the business and been an old hand in
the organization. Today: A CEO today
is usually a functional expert with an expo- sure to general management
and a keen sense of commercial and business potential. It is possible
that he has rotated around two or three functions. He maybe home grown,
but in many cases is brought from the outside. History: CEOs
had time to turnaround business or were at least permitted reasonable
timelines to bring about changes and growth to business and
organizations. Of course, none had a lifetime to display leadership and
management capabilities. Today: CEOs today
have much less time to prove their mettle in managing growth and
expansion. Expectations are
over much shorter time horizons and in some cases this is even
documented at the time of appointment. History:
Business challenges of CEOs were the same as that of today!
Growth, EVA, pressures of Dalal /
Wall street, human resources, technology and
innovation etc. Today:
True, except that now there are fewer entry barriers to most industries.
Increasing competition, rapid innovation, global reach
of services and access to latest
technology by the closest competitor, is putting more pressure on
leaders to add value to business in different ways. History: CEOs
earlier were ambitious but not restless! They looked and were often
happy with organic growth. Today: There are
so many more opportunities outside that a CEO can exercise his options
anywhere. On an average, in coveted industries or for unique skill set,
a CEO may, get as many as 3-4 calls from search firms in a week! CEO
aspirations are boundless now. History: If a
job took the CEO to remote locations so be it! Unless hugely
constrained, he took up opportunities within the organization even if it
meant relocation and in some cases, inconvenience. Today: A CEO will
choose where he wants to work and for how long. A business head will not
necessarily move in the parent group if the new role requires him to
change location. Yet she/he will be willing to go abroad or anywhere
only if it suits his personal and professional considerations. History:
Salaries were high at leadership levels but not absurdly so. Very few
got stock options and variable pay components were not only small in
percentages but also moderate in payouts. Today: Top
management remuneration is skyrocketing, some- times several times that
of the manager at the next level! Variable pay, stock options, payment
in foreign currencies, payment for children's college education in
another country, sign-oil bonuses etc. are common practice. History: 'Fitting
into Culture' required initial effort, but if
the CEO was 'homegrown' it was hardly an
issue. If the leader was a direct recruit, it
was easier to find the person from culturally similar organizations. Today:
A leadership level manager, in his career track has
usually changed 3-5 jobs or more! He has
exposure to different cultures and
internalizes a combination of these. If an organization does not
meet his cultural criteria or vice a
versa, it translates into resentment and finally severance! This is
especially true in family owned
businesses. (Purvi Sheth is Vice President, Shilputsi Consultants (India/USA) and Tarun Sheth is a Director) |
|
Human
Resource Development & Shilputsi | Our
Services | HR
Consulting & Advisory Services | Recruitment
Services | Assisting
in Partnering for Outsourcing Business Processes
| Partial List of Our Clients
| Our Management | Our
US Office| |
|
|
